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2016 (8) TMI 356 - ITAT KOLKATA

2016 (8) TMI 356 - ITAT KOLKATA - TMI - Disallowance of purchases u/s 40(A)(3) - cash payment exceeding ₹ 20,000/- Held that:- It is pertinent to note that the primary object of enacting section 40A(3) were two folds, firstly, putting a check on trading transactions with a mind to evade the liability to tax on income earned out of such transaction and, secondly, to inculcate the banking habits amongst the business community. Apparently, this provision was directly related to curb the evasi .....

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companies and has produced the sales bills of the company. The AO has also verified the transactions from the companies by issuing notice under Section 133(6) of the Act. So in the instant case there is no evasion of tax by claiming the bogus expenditure in cash. - Decided in favour of assessee. - ITA No.1198/Kol /2011 - Dated:- 22-6-2016 - Shri Waseem Ahmed, Accountant Member and Shri S.S.Viswanethra Ravi, Judicial Member For The Appellant Shri K.K.Khemka, Advocate Fpr The Respondent : Shri Ra .....

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red in law as well as on facts in confirming disallowance / addition us 40A(3) for purchases made ₹ 73,48,251/- from IFB Agro Industries Ltd. 1(B) For that the confirmation by Ld. CIT(A) of disallowance / addition u/s 40A(3) is legally & FACTUALLY wrong, illegal & unjustified. 2. For that the Ld. CIT(A) erred in law & on facts in not properly considering provisions of Sec. 144/145 of the IT Act. 2. The inter-connected issues are that Ld CIT(A) erred in confirming the order of A .....

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ch was the clear violation of the provisions of Section 40(A)(3) of the Act. During the assessment proceeding, AO held that the payment made by the assessee in cash has clearly violated the provisions of Section 40(A)(3) of the Act. The AO also observed that the case of assessee does not fall under the exceptions provided in clause 6DD of income Tax Rules of the IT Rules 1962. Therefore, he has disallowed a sum of ₹ 73,48,251/- and added it to the total income of the assessee. 4. Matter wa .....

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pages from 1 to 196 and submitted that assessee is Authorised Retailer Agent (franchise) of country sprit of West Bengal Government under Bengal Excise Act & Rules. The payments were made by way of deposit of cash directly in the bank a/c of Wholesaler Agent of West Bengal Government in terms of Calcutta Gazette notification No, 188-EX/0/R-4/2000 dt. 23/02/2000, THE ENTIRE PAYMENT IS THEREFORE TO WEST BENGAL GOVERNMENT (through Authorised wholesaler agent) who is 'PRINCIPAL' in this .....

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ntioned on the back of the paying slip. In the invoice issued the supplier has specifically mentioned the amount of Bank deposit and cash received column was remained BLANK (see copies Paper Book Page 44 to 90. The ITO has verified the entire purchase from the wholesaler Agent and the supplier has confirmed the total sales made by them to the Assessee, IFB Agro Industries Ltd. Having PAN. AAACI6487L Bank A/c. No. 10306876975, SBI, City Centre Durgapur and Axis Bank, Durgapur A/e. No. 21301020001 .....

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dit. (TAN No: of the party CALl0l584G / 59(2) the WHOLESALER AGENT OF W.B. GOVT. is clear from TCS Certificate issued. The provision of Section 40A(3) was introduced in the act by Finance Act, 1968. As per the explanatory note para-73 the provision is designed to counter evasion of tax through claims for expenditure shown to have been incurred in cash with a view to frustrating proper investigation by the department as to the identity of the payee and the reasonableness of the payment. Earlier a .....

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also furnishes evidence to the satisfaction of the income tax officer as to the genuineness of the payment and the identity of the payee". The law amended and following provisions was introduced by the finance act 2007 w.e.f. 1.4.2008 and explanatory NOTES there under provides "provided that no disallowances shall be made and no payment shall be deemed to be the profits and gains of business or profession under this sub-section where any payment in a sum exceeding 20000.00 rupees is ma .....

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clause or phase from a main clause. 9. Use a comma to separate, words, phrases and clauses in the series. 10. Used a comma to set off absolute and parenthetical elements in the sentence. 12. Use a comma or commas to set off non-restrictive phrases or clauses from the rest of sentence. 16. Use a comma after terms that introduce a series or an example. FIRSTLY 3. After reading the original enactment and subsequent amendment and after reading the finance Minister's explanatory note the followin .....

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g the word considerations of business expediency and other relevant factors . (a) Circumstances as prescribed in the rule. (b) Extent of banking facility available. (c) Consideration of business expediency and other relevant factors. The intention of the Act is very clear by the fact that the Act has not used the word "AND" which denotes that cumulative conditions are Not required to be full filled. The absence of the word "AND" implies that the Act has GIVEN" ALTERNATIV .....

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wholesaler AGENT of WB. Govt. having IFB Agro Industries Ltd having PAN No: AAACI6487L Bank A/e. No: 10306876975 with SBI, City Centre, Durgapur, Excise Regn. No: 19200052155, VAT No: 19200052058, CST No: 19200052252, TAN No: CALl01584C and also reasonableness of the payment. (B) As price is determined by the West Bengal Govt. and is subject to check by the Excise Authorities. (C) Payment has been made by the assessee directly to the suppliers Bank A/e. on the printed stationery supplied by the .....

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ification No. 188-EX/0/R-4/2000 dt. 23/02/2000. The payments made is therefore, otherwise covered under Rule 6DD(b) of the I. T. Rules to which provisions of Sec. 40A(3) are inapplicable. 5. In this connection, attention is drawn to Calcutta Gazette as under: "5(1) - The retail vender or shall submit to the Wholesale Licensee through excise officer in charge of the warehouse a demand for issue of county sprit ", 5(2) No retail vender of Country Sprit shall deposit duty direct into the .....

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ellip;………. 5B Rule 6DD(b) OF I. T. Rules Where the payment is made to the Government and under the Rules famed by it" such payment is required to be made in legal tender. 5D. The ENTIRE PAYMENT, is therefore, to PRINCIPAL, WEST BENGAL GOVERNMENT through its wholesale Agent. The relationship, between the assessee (franchise Authorised Retailer) and W.B. GOVERNMENT (the supplier) acting under Bengal Excise Rules through its Authorised wholesaler Licensee (agent), both de .....

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Sec. 40A(3), therefore, are not applicable to this case under rule 6DD(b) also. 6. On the other hand the ld. DR vehemently supported the order of the lower authorities. 7. We have heard rival submissions and perused the materials available on record. After examining on the facts of the case and hearing the rival contentions of both the parties we find that the AO has disallowed the purchases where the payment was exceeding more than ₹ 20,000/- in accordance with the provision of section 40 .....

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spect of which payment is made in a sum exceeding twenty thousand rupees otherwise than by an account payee cheque drawn on a bank or account payee bank draft, no deduction shall be allowed in respect of such expenditure; (3)(b)Where an allowance has been made in the assessment for any year in respect of any liability incurred by the assessee for any expenditure and subsequently during any previous year (hereinafter referred to as subsequent year) the assessee makes payment in respect thereof, o .....

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nty thousand rupees is made otherwise than by an account payee cheque drawn on a bank or account payee bank draft, in such cases and under such circumstances as may be prescribed, having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors. From the plain reading of the provisions of section 40A(3), we find that certain exceptions have been provided then applicable for the assessment year 2008-09 and one of them is with .....

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se penalty. Therefore the assessee avoided the process of depositing the cash in his bank account and thereafter getting the demand draft in the name of the company in order to keep the stock within the prescribed limit at all the times. It is also important to note that the company was also not accepting the account payee cheque of the assessee as it will take couple of day s time in clearance. So in our considered view the exception provided in the provisions of section 40A(3) with regard of t .....

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ture in cash and to counter tax evasion. The CBDT Circular No. 6P dated 06.07.1968 reiterates this view that this provision is designed to counter evasion of a tax through claims for expenditure shown to have been incurred in cash with a view to frustrating proper investigation by the department as to the identity of the payee and reasonableness of the payment. 7.2 In this regard, it is pertinent to get into the following decisions on the impugned subject:- Attar Singh Gurmukh Singh vs ITO repor .....

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ed to restrict business activities. There is no restriction on the assessee in his trading activities. Section 40A(3) only empowers the Assessing Officer to disallow the deduction claimed as expenditure in respect of which payment is not made by crossed cheque or crossed bank draft. The payment by crossed cheque or crossed bank draft is insisted upon to enable the assessing authority to ascertain whether the payment was genuine or whether it was out of income from undisclosed sources. The terms .....

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has received the cash payment. Rule 6DD provides that an assessee can be exempted from the requirement of payment by a crossed cheque or crossed bank draft in the circumstances specified under the rule. It will be clear from the provisions of section 40A(3) and rule 6DD that they are intended to regulate business transactions and to prevent the use of unaccounted money or reduce the chances to use black money for business transactions. CIT vs CPL Tannery reported in (2009) 318 ITR 179 (Cal) The .....

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he AO to disallow 20% of the payments made u/s 40A(3) in the process of assessment. We, therefore, delete the addition of ₹ 17,90,571/- and ground no.1 is decided in favour of the assessee. CIT vs Crescent Export Syndicate in ITA No. 202 of 2008 dated 30.7.2008 - Jurisdictional High Court decision It also appears that the purchases have been held to be genuine by the learned CIT(Appeal) but the learned CIT(Appeal) has invoked Section 40A(3) for payment exceeding ₹ 20,000/- since it i .....

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o not been disputed by the department as it appears from the order so passed by the learned Tribunal. It further appears from the assessment order that neither the Assessing Officer nor the CIT(Appeal) has disbelieved the genuineness of the transaction. There was no dispute that the purchases were genuine. Anupam Tele Services vs ITO in (2014) 43 taxmann.com 199 (Guj) Section 40A(3) of the Income-tax Act, 1961, read with rule 6DD of the Income-tax Rules, 1962 - Business disallowance - Cash payme .....

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hers delayed by 4/5 days which would severely affect its business operation - Assessee, therefore, made cash payment - Whether in view of above, no disallowance under section 40A (3) was to be made in respect of payment made to principal - Held, yes [Paras 21 to 23] [in favour of the assessee] Sri Laxmi Satyanarayana Oil Mill vs CIT reported in (2014) 49 taxmann.com 363 (Andhra Pradesh High Court) Section 40A(3) of the Income-tax Act, 1961, read with Rule 6DD of the Income-tax Rules, 1962 - Busi .....

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